Study Guide to Man, Economy, and State with Power and Market

150 Study Guide to Man, Economy, and State with Power and Market
Technical Matters
1. When Rothbard decomposes the total demand for
money into the “exchange demand” and the “reservation
demand” (p. 756), the former technically
includes the nonmonetary demand for the money
commodity (p. 760). For example, someone who sells
labor services in order to acquire gold for use as fillings
in his teeth would be exerting an “exchange
demand” for money, even though this person does
not intend to use the acquired gold as a medium of
exchange.
2. In Keynes’s view, the demand for money is a downward
sloping function of the nominal interest rate, not
the PPM. The idea is that the opportunity cost of
holding cash (as opposed to investing the money in a
bond, for example) rises with the nominal interest
rate: At 10 percent holding a $10 bill means forfeiting
$1 in future cash, whereas at 20 percent the decision
costs $2 in forgone future money. Austrians
reject this explanation because (1) the (pure) interest
rate is determined by time preferences and (2) the
true opportunity cost of holding money is not simply
(the value of) a bond but (the value of) all other goods
and services that could have been purchased with the
cash.
3. The reductio ad absurdum on p. 839 may have lost the
reader. Rothbard arrives at the middle fraction
(which has “(hats) (pounds of sugar)” in the denominator)
by adding the two fractions at the top of the
page. But the reader must recall from algebra that in
order to add two fractions, a common denominator is